Household demand and willingness to pay for hybrid vehicles

- I formulate a mixed logit model of demand for hybrid vehicles and estimate the willingness to pay (WTP) for hybrids.
- Households' WTP for hybrid vehicles ranges from $963 to $1,718 for different income groups.
- The estimated WTP is significantly lower than the average price premium for hybrids, considering the fuel costs savings.
- Policy simulations of federal tax incentives suggest an increase of 4.1% in hybrid sales with a $1,000 tax incentive.

This paper quantitatively evaluates consumers' willingness to pay for hybrid vehicles by estimating the demand of hybrid vehicles in the U.S. market. Using micro-level data on consumer purchases of hybrid and non-hybrid vehicles from National Household Travel Survey 2009, this paper formulates a mixed logit model of consumers' vehicle choices. Parameter estimates are then used to evaluate consumers' willingness to pay for hybrids. Results suggest that households' willingness to pay for hybrids ranges from $963 to $1718 for different income groups, which is significantly lower than the average price premium (over $5000) of hybrid vehicles, even when taking the fuel costs savings of hybrid vehicles into consideration. The differences reveal that although the market has shown increasing interest in hybrid vehicles, consumers' valuation of the hybrid feature is still not high enough to compensate for the price premium when they make new purchases. Policy simulations are conducted to examine the effects of raising federal tax incentives on the purchase of hybrid vehicles.